Who it's for — Those trading derivatives (Futures) who want to avoid the nightmare of seeing their Take Profit turn into an unwanted opposing position.
In the derivatives market (Perpetual Futures), you don't have "coins" in your pocket. You are always Long (betting up) or Short (betting down). To close a Long, you must send a Sell order.
But what happens if your Sell order is larger than your Long position? You "flip": the Long position closes, and the excess contracts instantly open a new Short position.
By ticking the Reduce Only checkbox, you tell the exchange: "This order is ONLY to close (or reduce) an existing position. If the order would inadvertently open a position in the opposite direction, cut it or cancel it."
In simple terms (The Double Take Profit Nightmare) — You are Long. You place a Limit Take Profit. Then you forget you placed it. The price goes up a lot, but in the meantime you manually close the position at market. Now your position is zero. But your old Limit order is still sitting up there! If the price hits it, the broker will think you want to open a Short (sell). By ticking "Reduce Only", when you closed at market, the old Limit order would have self-canceled because it had nothing left to "reduce". It literally saves your life.
When to always use it
- When setting scaled multiple Take Profits: If you have 3 Take Profits and the market hits them and then collapses hitting your Stop Loss (which closes the remaining position), you must be certain the remaining Take Profits don't turn into short traps.
- Partial Close: If you want to close only 25% of the position.
In almost all modern platforms, the Stop Loss integrated into the order tab already has Reduce Only hardcoded. But for "floating" Limit orders on the chart, it's up to you to tick the box.
Summary Sheet
- Function: Mathematically ensures the order will only decrease the open exposure, never increase or reverse it.
- Result in case of error: The excess order is automatically canceled or resized by the exchange.
- Golden Rule: Every time you place an order whose purpose is to "exit" a trade, it must be Reduce Only.
Links
- take-profit — The orders that benefit most from the Reduce Only check.
- stop-loss — Stop losses are also always "reduce only" orders.
- bronze-path
Module: Module 3 — Orders and Operations
Know what happens when you click buy or sell.
